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Interpreting Europe and US Labor Markets Differences: The Specificity of Human Capital Investments

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Author Info
Wasmer, Etienne () (ECARES, ULB, Université de Metz, CEPR and IZA Bonn)

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Abstract

This paper suggests that in the US context, workers tend to invest in general human capital especially since they face little employment protection and low unemployment benefits, while the European model (generous benefits and higher duration of jobs) favors specific human capital investments. This conjecture provides, among other things, a rationale for differences in labor mobility and reallocation costs, which are typically ignored in American ’International Trade’ textbooks while considered as extremely large in the public debate in Europe. The main argument is based on a fundamental property of human capital investments: they are not independent of the aggregate state of labor markets, and in particular, frictions and slackness of the labor market raises the returns to specific human capital investments relative to general capital investments. This is a property that Becker’s seminal contributions could not envisage in the context of perfect labor markets. Two sets of implications are then derived: on one hand, mobility costs are high in Europe and turbulence has especially strong adverse effects. Jobs endogenously last longer in Europe than in the US, but when they are destroyed, the welfare loss for workers is higher. On the other hand, in the steady-state, European workers, ceteris paribus, are more efficient. In terms of transaction costs, the US pay on average higher search/hiring costs in the labor market, and smaller training costs, so that the welfare implications of each type of economy are a priori ambiguous: no model dominates the other one, and each one has its own coherence, although the European one is more fragile when macroeconomic conditions change.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 549.

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Length: 39 pages
Date of creation: Aug 2002
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Handle: RePEc:iza:izadps:dp549

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Related research
Keywords: training; specific human capital; general human capital; unemployment; matching;

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Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
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  11. Hassler, John & Mora, Jose V. Rodriguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "A Positive Theory of Geographic Mobility and Social Insurance," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  14. Malcomson, J., 1998. "Individual Employment Contracts," Discussion Paper Series In Economics And Econometrics 9804, Economics Division, School of Social Sciences, University of Southampton.
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  16. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ludwig, Volker & Pfeiffer, Friedhelm, 2005. "Abschreibungsraten allgemeiner und beruflicher Ausbildungsinhalte," ZEW Discussion Papers 05-36, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Laszlo Goerke & Markus Pannenberg, 2005. "Berufliche Weiterbildung "on-the-job" und Auflösung von Beschäftigungsverhältnissen," Working Papers of the Research Group Heterogenous Labor 04-22, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
  3. Nick Adnett & Stephen Hardy, 2007. "The peculiar case of age discrimination: Americanising the European social model?," European Journal of Law and Economics, Springer, vol. 23(1), pages 29-41, February. [Downloadable!] (restricted)
  4. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," IZA Discussion Papers 2571, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Westholm, Erik, 2003. "Leaving Rurality Behind. Re-orientation of spatial policies in Sweden," Arbetsrapport 2003:12, Institute for Futures Studies. [Downloadable!]
  6. David, Quentin & Janiak, Alexandre & Wasmer, Etienne, 2008. "Local Social Capital and Geographical Mobility: A Theory," IZA Discussion Papers 3668, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Duvander, Ann-Zofie & Ferrarini, Tommy & Thalberg, Sara, 2005. "Swedish parental leave and gender equality - Achievements and reform challenges in a European perspective," Arbetsrapport 2005:11, Institute for Futures Studies. [Downloadable!]
  8. Bäckman, Olof, 2005. "Welfare States, Social Structure and the Dynamics of Poverty Rates. A comparative study of 16 countries, 1980-2000," Arbetsrapport 2005:7, Institute for Futures Studies. [Downloadable!]
  9. Chéron, Arnaud & Hairault, Jean-Oliver & Langot, François, 2004. "Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach," IZA Discussion Papers 1364, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Lundqvist, Torbjörn, 2005. "The Employers in the Swedish Model The Importance of Labour Market Competition and Organisation," Arbetsrapport 2005:2, Institute for Futures Studies. [Downloadable!]
  11. Ana Lamo & Julian Messina & Etienne Wasmer, 2007. "Are Specific Skills an Obstacle to Labor Market Adjustment? Theory and an Application to the EU Enlargement," CSEF Working Papers 172, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  12. Blomquist, Sören & Christiansen, Vidar, 2004. "Welfare Enhancing Marginal Tax Rates: The Case of Publicly Provided Day Care," Arbetsrapport 2004:6, Institute for Futures Studies. [Downloadable!]
  13. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  14. Bert Minne & Marc van der Steeg & Dinand Webbink, 2008. "Skill gaps in the EU: role for education and training policies," CPB Documents 162, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  15. Hong, Ying & Corman, Diana, 2005. "Women´s Return to Work after First Birth in Sweden during 1980-2000," Arbetsrapport 2005:19, Institute for Futures Studies. [Downloadable!]
  16. Dirk Krueger & Krishna B. Kumar, 2003. "US-Europe Differences in Technology-Driven Growth: Quantifying the Role of Education," NBER Working Papers 10001, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Michele Belot & Jan Boone & Jan van Ours, 2004. "Welfare Improving Employment Protection," DEGIT Conference Papers c009_004, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  18. Nikolai Stähler, 2005. "Employment protection : its effects on different skill groups and on the incentive to become skilled," Working Papers of the Research Group Heterogenous Labor 05-07, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
    Other versions:
  19. Westholm, Erik, 2004. "Modes of re-territorialisation. Spatial implications of regional competition politics in Sweden," Arbetsrapport 2004:4, Institute for Futures Studies. [Downloadable!]
  20. Bocean, Claudiu George & Sitnikov, Cataliana Soriana & Meghisan, Madalina Georgeta, 2008. "Employment, productivity, output growth in emerging countries. Evidence from Romania," MPRA Paper 10694, University Library of Munich, Germany. [Downloadable!]
  21. Ström, Sara, 2005. "Childbearing and psycho-social work life conditions in Sweden 1991-2000," Arbetsrapport 2005:13, Institute for Futures Studies. [Downloadable!]
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